Good morning, ladies and gentlemen, and welcome to this conference call on EVN's results for the half year 2021/2022. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Mr. Stefan Szyszkowitz. Please go ahead.
Good morning and welcome to the conference call on EVN's results for the first half of the 2021/2022 financial year. Since last summer, the energy markets took an unexpected development. What started as a post-COVID price increase turned into historic distortions of energy markets and prices. Ultimately, the war in Ukraine began, the main driver for this development. The impacts of these developments on EVN and our integrated business model are varying. For generation, higher prices are positive and provide for a certain upside. However, please bear in mind that generation has been hedged at pre-running average levels rather than peak levels. For our energy supply business, higher prices are a burden, which we will be able to overcome through price increases. However, this is a timing effect. In Southeast Europe, the higher electricity prices are a challenge for the whole energy sector there.
Our activities are especially impacted by rising costs for network losses. In both countries, extraordinary government, respectively regulatory measures, were introduced as partial compensation for the significant rise in energy procurement costs. The remaining additional costs should be reflected in future tariff decisions by the regulatory authority. Due to the recent deterioration of the geopolitical and economic environment, above all, the global supply chains, we have to reassess the risks and earnings expectations for EVN Group of the international project business of WTE. This resulted in impairment losses to goodwill in the international project business in the amount of EUR 52.9 million, and to the residual carrying amount of the two combined sludge-fired heat and power plants in Moscow in the amount of EUR 4.4 million. Apart from these two plants, we have no further remaining activities in Moscow.
Our investment level in the reporting period was high. We were able to increase investments by 22.9% to EUR 191.5 million. This is in line with our commitment to further increase CapEx. The focus of our investment remains on networks, renewable energy, and drinking water in Lower Austria. We are also actively working on our target to further increase renewable generation capacities. Construction work started with three new wind farms. These projects will raise our installed capacity by a total of 67.2 megawatts. Commissioning of these new wind farms will take place in the course of the next financial year. Let me now continue with the key financials of the reporting period. The group's revenues were up by 65.5% year-on-year.
The main reason for this development was the sharp increase in electricity prices, which had a strong impact on revenue in Southeast Europe, as well as from renewable generation. In Austria, the higher network tariff set by E-Control, and in Austria as of the first of January 2021, had a positive influence on network revenues. The more frequent use of the Theiss power plant by the Austrian transmission network operator for network stabilization largely offset the lost revenue due to the disinvestment of Walsum 10 power plant. Growth was also recorded in the international project business. I would like to remind you that last year in quarter one, we had a one-off from the takeover and of an additional electricity procurement right from the Walsum 10 power plant. Other operating income included a positive one-off, while depreciation was increased by a required impairment.
The cost of electricity purchases from third parties and primary energy expenses were substantially up at EUR 1.3 billion. The main driver were higher energy procurement costs in Southeast Europe, including coverage of network losses. Other factors include the more frequent use of the Theiss power plant and higher procurement costs for our heating business. The share of results from at equity accounted investees was down from EUR 127.3 million to EUR 85.2 million. Declines were recorded among others by our supply company, EVN KG and by RAG. Based on these developments, EBITDA was down by 21.6% at EUR 420.2 million. As already mentioned, we had to record impairment losses on the goodwill in the international project business and two combined heat and power plants in Moscow.
These impairment losses were constructed by a revaluation of EUR 6.4 million to the Kavarna Wind Park in Bulgaria, which we recorded in the first quarter. The previous year was affected by an impairment loss totaling EUR 113.3 million to the Walsum 10 power plant. In total, the group's EBIT declined by 17.1% to EUR 211 million. Financial results dropped to EUR -31.3 million due to the weaker performance of the R 138 fund and foreign exchange development. In total, we generated a group net result of EUR 127.4 million, which represents a decline by 27.6% over the previous year. Now I would like to move to the next slide, which provides some information regarding the group's balance sheet structure.
EVN's net debt amounted to EUR 1.1 billion. Gearing ratio was down year-on-year and amounted to 16%. Our financial flexibility is solid. We benefit from lower net debt and sufficient committed undrawn credit facilities, which amounted to EUR 602 million as of the end of March 2022. In April, our corporate bond with a nominal amount of EUR 300 million was due for repayment. As a preliminary bridge financing measure and to keep financial flexibility high, we concluded short-term loans totaling EUR 150 million and term loans with tenors until April, November, December 2023, totaling EUR 250 million. We also issued a registered bond in April, amounted to EUR 155 million, and further refinancing steps will be evaluated. Today, I can inform you that the rating agencies recently published their annual updates on EVN.
Those agencies confirmed the ratings and stable outlooks. We are rated A1 from Moody's and A+ from Scope Ratings. According to our financial policy, our goal is to maintain ratings in the solid A range. Let's move on now to the next slide, which covers the generation segment in more detail. Electricity generation volumes in the segment were down by 5.1% year-on-year. The reason was the absence of Walsum 10 following the disinvestment of our stake last year. On the other hand, our Theiss Power Plant was called more frequently by the Austrian transmission network operator for network stabilization. The share of renewable generation increased to roughly 60% compared to last year's 53.5%. Higher wind flows were partly able to compensate the decline in hydropower. The revenue was up on a year-on-year.
Higher electricity prices compensated the decline in electricity generation. EBITDA stood at EUR 137 million. Also due to the revaluation of the Kavarna Wind Park in Bulgaria, segment EBIT increased to EUR 122.4 million. Today, I will also provide an update to our segment outlooks, which we published last December. For the generation segment, we are raising our full year guidance due to the increase in electricity prices and above average electricity generation from wind power in the first six months. On the next slide, I will continue with the energy segment. Before I talk about the developments in the energy segment, I would like to address the topic of gas supplies in the current geopolitical situation. At the moment, 80% of Austria's total gas demand has been sourced from Russia.
Austria's dependency on Russian gas is a question of existing connections to cross-regional transport pipelines and infrastructure. More than 50% of the Austrian gas demand accounts for industrial customers. If, for whatever reason, gas deliveries from Russia to Austria are interrupted, E-Control measures would be initiated. Based on the respective law, the Austrian government and E-Control would need to decide on the distribution of gas. Such law and situations has never been tested so far. I do hope that such a worst case scenario will never occur. At EVN, supply security for natural gas has always been a key priority. Therefore, we have always rented gas storage capacities from RAG to have own gas reserves for our customers available in the case of an unexpected gas shortage.
As winter is over, the process of refilling the gas storage facilities again has already started, and we have already reached a level of about 32% for our supply business. In addition, we are aiming to secure strategic gas reserves whenever possible from sources other than Russian ones. Our focus is to secure our gas reserves to the possible maximum before the winter beginning of next winter season. We are aiming at 80% on the supply business. Now I would like to inform you about the developments in our energy segment. A strong increase in electricity prices resulted in higher revenue from the marketing of our own electricity production. Higher sales volumes and price adjustments supported revenue growth of our heating business. Therefore, revenue rose sharply and stood at EUR 394.9 million.
Operating expenses reflected costs for primary energy carriers for the increased use of the Theiss Power Plant, as well as higher procurement costs for the heating business. According to our contracts in the heating business, higher energy costs will be passed on to customer once or twice a year based on price index mechanism, so there's a certain time lag here. The sales volume showed different developments. Whereas electricity sales increased, natural gas declined due to milder temperatures. The earnings contribution from the at equity consolidated company, EVN KG, declined due to higher procurement costs. EVN KG already increased prices for household customers for electricity as of January and for natural gas as of February. Based on these developments, the energy segment reported an EBITDA of EUR 48.5 million and an EBIT of EUR 37.9 million. I can confirm the outlook for the energy segment.
In the absence of positive one-off effects from last year, we expect a decline in segment results. In addition, the situation of EVN KG has changed. The price increases on the customer side, which we implemented in January and February, were meant to pass on higher procurement cost levels, which we had reached during autumn. However, as you know, there have been additional price hikes in the markets due to the war in Ukraine. This even higher procurement cost will be passed on according to a new price index mechanism, which we included in our contracts. However, there is a time delay. Therefore, we expect a further deterioration of the results of our supply company until end of September. On the next slide, I will present the developments in our network segment.
Network sales volumes showed a stable development for electricity, whereas natural gas volumes rose due to the increased use of the gas-fired generation for network stabilization. In the beginning of 2021 and 2022, the Austrian regulator increased tariffs of both electricity and natural gas. Based on these volumes and price developments, segment revenue were up by 26.2%. EBITDA in the network segment increased by 4.1% and EBIT by 3.1%. We adjust our full-year outlook. We expect lower segment results due to the increase in market prices and resulting higher cost for network losses, as well as higher depreciation resulting from higher CapEx. On the next slide, I will continue with the Southeast Europe segment. Temperatures in Southeast Europe were below the previous year and long-term average, which had positive volume effects.
In addition, customer changes from liberalized markets supported growth in sales volumes. In combination with higher prices, these developments resulted in a sharp rise in revenue. As already mentioned in the beginning of this call, our Southeast Europe segment suffered from rising costs due to network losses due to the higher market prices. In both countries, extraordinary government, respectively, regulatory measures provide for at least partial compensation for the significant rise in energy procurement costs. In Bulgaria, our distribution network operator and our heating company receives compensation payments in the total amount of EUR 67.5 million to cover higher costs. In North Macedonia, the regulator announced an extraordinary increase in electricity prices for household customers of EVN Home and in the network tariffs as of the first January 2022, as a partial compensation for the significant rise in energy procurement costs.
The remaining additional costs shall be reflected in future tariff decision. Segment EBITDA was down at EUR 21.2 million, and segment EBIT amounted to EUR -17.3 million. As already mentioned in Q1, the distortions on the energy markets and resulting higher costs for network losses will be the reason that we will miss our full year EBIT target range of EUR 40 million-EUR 60 million . Based on the current regulatory framework, the negative effects caused by higher costs for network loss coverage should be recovered through tariff adjustments in the following years. I would like to conclude my presentation of the segment with the environment segment. As already mentioned in the beginning of today's call, the recent geopolitical developments, being the war in Ukraine, inflation, rather strained economic outlooks, and last but not least, the global supply chain issues.
All these factors taken together have changed the group's risk and earnings expectations for the international project business of WTE. Therefore, we recorded an impairment losses to goodwill in the international project business in the amount of EUR 52.9 million and to the residual carrying amount of the two sludge-fired cogeneration plants in Moscow, which was EUR 4.4 million as at the end of March. Apart from these two plants, we do not pursue any environmental projects in Russia or Ukraine. The financial performance of this segment is in line with the development in the international project business. In line with the progress on the Kuwait project, there was a corresponding rise in both revenue and operating expenses in the segment. EBITDA amounted to EUR 23.8 million.
EBIT declined due to the aforementioned impairment losses and amounted to EUR -49.9 million. In view of the impairment losses, we also needed to adjust our segment outlook. For the full year, we expect a decline in segment results. I also have to highlight the risk that any intensification of international crisis could lead to additional project delays due to the disruption of international supply chains and consequently to further declining earnings. With this, I conclude the presentation of this segment. On the next slide, I will continue with the development of our group cash flows. Gross cash flows was substantially lower at EUR 389.6 million. Please remember that it was unusually high in the previous year due to the receipt of a compensation payment for the takeover of an electricity procurement hub.
The decline was reduced slightly by higher dividends from equity accounted investors. The decline in cash flow from operating activities was even higher in comparison. The sharp rise in energy prices and lower investment by EVN KG in the group's cash pool were responsible for working capital effects. Cash flow from investing activities was influenced chiefly by year-on-year increase in investments in property, plant, and equipment and a change in investments in cash funds. The increase in cash flow from financing activity is due to three bank loans totaling EUR 250 million. The dividend payment for last financial year represented a contrary factor. The net change in cash and cash equivalents amounted to EUR -90.7 million. As mentioned before, our financial flexibility is solidly secured with committed undrawn credit facilities of EUR 602 million as at the end of March 2022.
I would like to conclude my presentation with the outlook for the group. We are going through an extraordinary year with substantial distortions which were not predictable a few months ago. Therefore, we had to adjust some of our segment outlook, as I informed you during the call, and it's also documented in our letter to shareholders. On group level, we are confident that our diversification and management measures will provide assistance to our financial performance. Hence, I confirm our guidance for this financial year. We expect group net result in 2021-2022 to be in a range of approximately EUR 200 million-EUR 240 million. With this, I have reached the end of my presentation. I'm now looking forward to answering the questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press nine and the star key on your telephone keypad. In case you wish to cancel your question, press nine and the star key again. Please press nine and star for your question. The first question comes from Peter Crampton. Please go ahead.
Hello, it's Peter Crampton from Barclays. Good morning. Two questions, if I may. Firstly, I would be interested in EVN's views on what they see in regarding kind of windfall taxes for kind of Austrian generation. The second question would relate to your Bulgarian and Macedonian business, where we are on kind of potential government intervention, given all the issues we've seen in Romania.
Thanks, Peter. I think two valuable questions. First of all, you're referring to a comment of our Austrian chancellor, which he did in a regional press, which caused also some turbulences on the Austrian Stock Exchange. I think there has been a reflection on certain measures which have been taken in other European member states. As we all know, this historic situation leads also in Brussels to a debate about the pricing mechanism. We don't know where they are heading. Coming back to Austria, I cannot confirm any proposal which has been debated so far, neither in the public nor internally, which is really giving us any guidance where this debate will go. Therefore, I cannot further comment on that.
What you have seen is that Verbund obviously are trying to give a bonus to trustful customers and therefore also trying to change a bit in the public the reference that they are just profiting too much from the hydropower production in this environment, which, as you know, is not the case for EVN. Because if you look into the numbers, you see that we only have a percentage of own production in relation to end customer supply of around 17%. Therefore we are not the apple of the hydropower utilities. We are more now taking these higher prices and then having to pass them to our customers. The second question is regarding Bulgaria, North Macedonia. There we see a strong support to stabilize the energy sector overall.
I mentioned before that we got direct subsidies of around EUR 67 million in Bulgaria. We are expecting now the regulatory decisions on the first of July for Bulgaria and North Macedonia. If we can give a guidance, we would expect that we are not making a negative result there in this division, which is the best we can aim for, because it will take a couple of times before the losses can be compensated.
Thank you for your answers.
The next question comes from Lueder Schumacher. Please go ahead.
Hi, good morning. Also two questions on my side. The first one is on gas supply. You mentioned that there's various provisions in Austria who deal with the event of a severe curtailment. Is there also something in the Austrian law similar to the energy security law in Germany, where all supply obligations cease to be effective in the event of such a curtailment, i.e., nobody has supply obligations and there's no need to cover volumes in the market? It would be great if you could shed a bit more light on the legal situation in Austria in such an event, as this is a very popular topic. Also on Southeast Europe, I mean, you already said you hope to well be partially compensated and at least avoid losses.
What timeframe are we talking here for this, for this compensation? Is it T plus one, T plus two? I mean, when can this actually get become a profitable unit again, especially in this environment? Actually, just one other question as well on the impairments in the environment division. What is behind that? Are these trends that we can expect to continue? Are there going to be more impairments in the future? Just general, what is the outlook there for this division? Two questions.
Yeah, thanks a lot for these questions. First of all, regarding the gas situation, there is a kind of emergency law which would be effective if the market is not giving enough gas anymore. Either by the interruption of the supply on the Russian side, on the European side, or by obstruction. If this is taking place and the market is not providing enough volumes anymore, then this phase of state intervention would start. In our case, as EVN supply side, we always had this kind of 80% stored for our own means, for our household customers over all these years. We are just building up this reserve once again.
As I mentioned before, we are now at 32%, and at the beginning of November, we will be around 80%, which is our normal way to secure the supply for our customers. What the state has done additionally, that they started to raise and strategically reserve. This should be at the end, go up to terawatt-hours of gas, which should be stored in the facilities in Austria. Of course, we have the situation that Gazprom is not only a supplier of gas, but also running some of the storage facilities. This is a complicated legal situation, which I would call a transformation state because the European Union is working on a directive to have a legal base already to handle this.
I would say from an Austrian point of view, and being so much exposed in this situation, everyone tries to help to secure additional volumes, either from Russian volumes or even third-party volumes. We are quite successful at the moment also with third-party volumes to ensure that we have a more diversified mix for the coming winter. This is the situation regarding the gas situation in Austria, but highlighted that legal framework is still underway. The second thing which I want to mention also, the new decisions by the regulatory authorities will be on the first of July. Therefore, this will only go with three months into our financial year. Therefore, there is a delay going on.
I would, on the midterm, give you the assurance that we expect to be back on this EUR 40 million-EUR 60 million EBIT expectation, under the bottom line. Bulgaria is compensating, yeah, quite consistent from month to month. It's on a monthly basis. These government grants work immediately, and they will go directly into our expected result at the end of September. We expect that the overall result in Bulgaria will compensate the delay in Macedonia, and therefore stabilize the organization, as a segment.
Regarding the receivables and the international project business, it's just reflecting on the new environment in market, country risk premiums, costs of guarantees and supply chain, that new projects, yeah, will be not too easy to get granted on a financial calculation, which we have to do. Therefore, we took this step now to free ourselves, yeah, from this kind of burden and rucksack for the new projects in the future.
Very clear. Thank you. Just one follow-up on your answer of the
Sure.
To the first question on gas supply. You said everything will be fine once gas storage is full, but if it were to come to a complete curtailment of Russian flows, and let's bear in mind so far there hasn't been any curtailment.
Yeah.
Russian gas flows are very normal, apart from Yamal, which has been down since October. What would happen to your supply obligation to your customers? If there's curtailment tomorrow, yes, government steps in, but would you still have to deliver?
No, this is a force majeure case, yeah?
It is force majeure. Okay.
They would focus on household customers, and I'm sure they would also opening up the definition for protected customers regarding strategic suppliers. If you think about the agricultural production in Austria is on a high percentage completely dependent on gas. Processing of meat and food depends in the industrial production on gas, and I'm sure they will protect this. They go down from big customers to the small customers and trying to secure that the demand is reduced, and they give the big customers a certain information in advance so that they can close and run down their facilities without this without crashing the technical operations. I think what is discussed in Europe everywhere is how to do that.
It's not easy, as you know, for a distribution grid, yeah, to do this, yeah, because it has never been done before. From the logic of the legal references, there is a clear, guidance, yeah, where to start and where to stop.
Very clear. Thank you.
The next question comes from Teresa Schinwald. Please go ahead.
Thank you, and good morning. Also two questions from my side. The first one, coming back again to the gas issue. I'm still trying to wrap my head around how the mandatory storage requirements would impact the results of RAG as they're by far the largest storage owner in Austria. Austria has, as far as I can see, a lower threshold for mandatory gas storage, because it has so much storage. At the same time, the storage facilities are connected to the German grid. Could you elaborate a bit more on that? The second one is, could you also shed some more light on the goods and materials that could cause delays in the project business? Is it a general thing, or are there particular bottlenecks that we might look at?
Yeah. Thanks a lot. Regarding the Austrian situation, I can confirm that Haidach is a very valuable asset in the middle of Europe because it's one of the biggest and the strongest facility for gas. It is primarily connected to Germany. Therefore, the Austrian government, also to split the resources between Austria and Germany, is now pushing and enabling RAG to build as fast as possible a strong connection to the Austrian high-pressure grid. This has to take place in the upcoming months this year, and let us hope that during the winter they will be able to finalize. Therefore, for example, part of this technical equipment, it's not easy to buy these days in markets. This is exactly what we are seeing, specified industrial equipment.
It is not able to get any more in this kind of more or less real-time markets, yeah? Therefore, we see this in a lot of projects that even confirmed suppliers suddenly backstep and try to prolong their obligations for a couple of months, in some cases even longer. Therefore, I expect also a hit to the global economy because this is taking place just in the energy industry. This is taking place everywhere. On this level, coming to your second question, my comment regarding these delays is not in relation to the existing projects. We have some delays there, but we also have the right to be compensated for these delays.
It is more about the overall calculation of future projects because if you put all this risk into your financials, yeah, then it's also a question if you can be successful in markets with these projects. This cautiousness, after this crisis which we are going through now and maybe even see worse developments upcoming, we took the decision to readjust our expectations on earnings and risk in this case, yeah. Also, regarding markets, risk premium countries and so on. I even would expect that a couple of potential customers will start to delay their projects because they must be in a similar situation. Therefore, we will see this kind of hit on the global economy in a lot of different ways. Is that helping? Is this answering your question?
Yes, it is helping, but I still have a follow-up. Because your renewables capacity targets, you have increased them several months ago. Did you already secure the supply contract for the windmills and PV installations?
Teresa, this is really a good question. Yeah. What we are expecting will, at the end of 2022, yeah, that we will have 450 MW increased capacity. Of course, there can be delays in construction and so on. The windmills and the supply contract of the windmills, this was the earliest thing we were drawing in the minute we made a decision and we got the permits to build because exactly what is happening, there's such a demand and run for windmills, yeah, that if you're late to the party, you have to wait quite a time.
Okay, great. Thank you.
Okay. At the moment there seem to be no further questions. If you would like to state another question, please press nine and the star key on your telephone keypad now. Let's just wait a couple more seconds. Okay. There seem to be no further questions, so let me hand back over to your host for some closing remarks.
Thank you for joining today's conference call. We will publish the results for the first three quarters of fiscal year 2021-2022 on Thursday, August 25th . Please join us then again. Stay healthy and goodbye.